Cohn’s departure is a watershed moment for US economic policy

Gary Cohn announced on Tuesday that he would resign as President Trump’s top economic adviser and as director of the National Economic Council (NEC). While the announcement was not a surprise to anyone following developments in Washington, D.C., it comes at a crucial time, and it represents a watershed moment for U.S. economic policy.

Gary Cohn, who had served as Goldman Sachs’ president and chief operating officer since 2006, joined the Trump administration on Jan. 20, 2017.

{mosads}His influence grew rapidly in the early stages of the presidency, and Cohn’s business expertise made him the central economic figure in the administration when it came to financial, regulatory, trade and employment matters.

Most of last year’s economic policy developments, including the tax reform, the regulatory reform and the infrastructure spending push, were steered by Cohn.

However, while many will remember Gary Cohn’s accomplishments, including the massive $1.5-trillion Tax Cuts and Jobs Act of 2017, what he did not do may have been more important for the U.S. economy: He did not support increasingly protectionist and isolationist currents within the administration.

Cohn represented a moderate and business-friendly view within the White House. On numerous occasions, he is told to have given the president very practical and honest guidance on key policy issues. Most notably, he pushed for the U.S. to remain in the Paris Climate Agreement, he argued against the U.S. leaving the Trans-Pacific Partnership, and he advocated for a renegotiation of, rather than an exit from, the North American Free Trade Agreement (NAFTA).

For the free trade advocate that Cohn is, President Trump’s announcement that the U.S. would impose steel and aluminum import tariffs (despite fervent opposition within the Republican party) was probably the tipping point.

Cohn had, on numerous occasions, voiced his opposition to the protectionist leanings of the administration’s “America First” vision. Worrying about the potential economic fallout from increased trade protectionism, Cohn is said to have threatened to resign if the 25-percent steel import tariffs and 10-percent aluminum tariffs were imposed.

While his decision to resign doesn’t come as much of a surprise — he had threatened to do so a few months ago following the deadly nationalist rally in Charlottesville — it represents an important shift in the White House’s trade orientation.

Three individuals will now play a more significant role in driving the trade agenda: U.S. Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross and Peter Navarro, who was recently promoted to assistant to the president.

Navarro’s ascendance is particularly noteworthy as he has been a strong advocate against free trade. Navarro, who is a fervent opponent of trade deficits, has argued in favor of the U.S. leaving NAFTA and imposing tariffs on our main trading partners, including China. In this context, Cohn’s departure creates a significant power and influence vacuum that will be filled by more nationalistic and protectionist views.

Already, the trade investigation that led to the announcement of steel and aluminum tariffs was founded on national security concerns, which is both rare and significant. With the U.S. administration clearly moving toward a more trade-protectionist stance, the major concern is that other countries retaliate in kind.

This could lead to an escalation of trade tensions with ramifications potentially spilling over into NAFTA negotiations or the financial sphere (for instance with China curbing purchases of Treasuries).

These worries have rattled markets over the past week, and uncertainty around who will fill the NEC director’s role — Larry Kudlow, Peter Navarro and current Council of Economic Advisers Chairman Kevin Hassett are said to be candidates — could lead to further market turbulence.

In prepared remarks, Cohn noted that he had enjoyed working on “pro-growth economic policies to benefit the American people, in particular the passage of historic tax reform.” This legislative accomplishment will certainly remain the most memorable achievement during his tenure.

However, as we reflect upon the future of U.S. economic policy, we should be reminded that, “We never know what we have until it’s gone.”

Gregory Daco is the chief U.S. economist for Oxford Economics, a firm that provides research on major economies, the emerging markets, commodities, industrial sectors, global economics, global industry, cities and regions.